Dallas Fed trimmed-mean inflation falls to multiyear low in June

Dallas Fed trimmed-mean inflation fell to a 2.2% annual rate in June, its lowest reading since July 2021, according to CNBC’s reporting on the regional Fed’s data. The result sits well below conventional measures: the Commerce Department’s personal consumption expenditures index rose 3.7% from a year earlier, while core PCE rose 3.3%, leaving both above the Federal Reserve’s 2% objective.

The divergence has gained attention as Federal Reserve Chair Kevin Warsh considers changes to the data used in judging price pressures. CNBC reported that Warsh has established task forces focused on data and on how policymakers measure and respond to inflation.

What is Dallas Fed trimmed-mean inflation?

The measure is derived from PCE, the Fed’s preferred inflation gauge. Rather than excluding set categories such as food and energy, it removes the 24% of component price changes at the low end and the 31% at the high end, then calculates inflation from the remaining observations. The purpose is to reduce the effect of extreme price changes and produce an estimate of the central price trend.

For June, the Dallas Fed measure showed a 1.4% annualised increase over one month, down 1.3 percentage points from May and the lowest result since November 2020, CNBC reported. Its 12-month reading declined by 0.2 percentage point to 2.2%.

The Cleveland Fed produced a similarly subdued, though higher, figure using consumer price index data. Its 16% trimmed-mean CPI measured 2.63% in June, the lowest unrounded reading since May 2021, according to CNBC. The Cleveland calculation retains readings between the 8th and 92nd percentiles.

• Headline PCE: down 0.1% in June, up 3.7% from a year earlier.
• Core PCE: up 0.1% in June, up 3.3% from a year earlier.
• Dallas Fed trimmed-mean PCE: 1.4% at a one-month annualised rate and 2.2% over 12 months.
• Cleveland Fed 16% trimmed-mean CPI: 2.63% in June.

Why do the low trimmed-mean readings not settle the Fed debate?

The measures may signal easing underlying price pressure, but they are not conclusive evidence that inflation has returned to target. Dallas Fed President Lorie Logan warned that the current mix of price increases and decreases can cause the trimmed-mean calculation to remove too many price increases, potentially placing its result below the true inflation trend.

Logan dissented from the Federal Open Market Committee’s July decision to leave its benchmark rate unchanged, preferring a quarter-point increase, CNBC reported. She said inflation appeared to be heading toward the mid-2% range rather than fully returning to 2%, with risks tilted upward. Neel Kashkari of Minneapolis and Beth Hammack of Cleveland also dissented in favour of a rate increase, according to CNBC.

The distinction matters because the FOMC’s target for overnight bank funding influences wider borrowing conditions through its policy tools, though the effect reaches households and companies at different speeds. The Fed’s rate target reaches the real economy through bank funding and other dollar interest rates. For now, the June data offer policymakers contrasting signals: unusually low trimmed measures alongside year-over-year PCE readings that remain above target.

This story draws on original reporting from CNBC.